Fidelity, Schwab Planning Do-It-Yourself Portfolios

February 14, 2001 (PLANSPONSOR.com) - In a move that could open a new door for 401(k) plan investors, Fidelity and Schwab are reportedly gearing up to offer "do-it-yourself" investment portfolios.

According to The New York Times, both firms are experimenting with ‘folios”, pre-selected baskets of stocks that represent an alternative to owning mutual funds or individual stocks.  Folios are typically oriented toward a particular market sector, but investors can customize the stocks in their individual basket to reflect personal preferences.

Starting with a pre-defined “basket” helps an investor get started, with the flexibility to change individual holdings later on.

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A Tisket, A Tasket

According to the Times, Fidelity plans to begin offering a variety of baskets of stocks, some devised by Lehman Brothers, in an attempt to appeal to active traders who want to move in and out of different sectors.  They hope to introduce that product, described as a “cross between exchange-traded funds and customized portfolios” by the middle of this year. 

Meanwhile, Schwab is already road testing Portfolio Source, a couple of baskets of stocks chosen by analysts at its U.S. Trust subsidiary.  For an annual fee and a $10,000 minimum investment, customers in the trial region can buy a basket of shares of 10 preselected companies, then trade those stocks on the advice of the analysts or at their own discretion.  U.S. Trust analysts will recommend changes in the portfolio via email.

Industry Opposition

Last July the Investment Company Institute asked to SEC to treat these products as the separate issuance of a security, subject to registration with the SEC ( http://www.ici.org/folio_com_attach.html ), though no action has taken place thus far.

Fidelity does not consider the offering to be a mutual fund, since it is not a managed offering.  However, it also says this offering will not contradict Fidelity’s support of the mutual fund industry opposition to folios, according to the article.

How long before participants begin clamoring for the chance?

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